UPDATE 2-Dell sees lower fiscal Q2 margins, stock falls
* Dell sees lower fiscal Q2 gross margins
* Fiscal Q2 revenue to increase slightly sequentially
* Demand stabilizing but customers still deferring orders
* Shares fall 3 percent in after-hours trading (Adds analyst comment, details from Dell, byline; previous NEW YORK)
AUSTIN, Texas, July 13 (Reuters) - Dell Inc (DELL.O) forecast lower gross margins for the July quarter, citing higher component costs and an unfavorable product mix, sending its shares down 3 percent
The world's second-largest maker of personal computers also said on Monday, the eve of its analyst day in Austin, Texas, that it expects to report a slight sequential increase in revenue for its fiscal second quarter ending July 31.
"We continue to believe that customers are deferring IT purchases, and that we will see demand return to more typical levels at some point," Chief Financial Officer Brian Gladden said in the statement.
While demand for Dell's products and services seems to have stabilized, he said that varied significantly by segment and geography.
Dell, like other PC makers, have been hurt by slumping tech demand during the global recession, with one of the only bright spots being cheap netbook computers that some analysts say offer thinner profit margins.
"Dell's story has been all about profitability over growth, so if the product mix is shifting to the low end and that's impacting profitability, then that really hurts Dell's value proposition," Collins Stewart analyst Ashok Kumar.
Kaufman Bros analyst Shaw Wu said Dell's second-quarter outlook was in-line to a little below what Wall Street was expecting.
He said the shares were likely reacting to the gross margin forecast, which Dell said was the result of "higher component costs, a competitive pricing environment, and an unfavorable mix of product and business-segment demand."
"This forecast is a little lighter than what people thought," Wu said.
Dell said it is targeting in the long term 5 to 7 percent compound annual sales growth, operating income at or above 7 percent of revenue, and cash flow from operations exceeding net income.
The company added that it is on track to cut annual costs by more than $4 billion by the end of fiscal 2011. Continued...
